Rosemary Corp. has daily sales of $139,000. The financial manager at the firm has determined that...

Question:

Rosemary Corp. has daily sales of $139,000. The financial manager at the firm has determined that a lockbox would reduce collection time by 2.2 days. Assuming the company can earn 5.5 percent interest per year, what are the potential savings from the lockbox?

Receivables Collection time

Receivable are the accounts who owe to the company money against sales made by company. There will be different collection time and credit days allowed by different firm.The collection time have direct impact on cash flow of the company.Money has earning capacity in form of interest. Lower the collection time higher the company can earn interest.

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Given Information:

  • Daily Sales = $139,000
  • Reduction in collection time = 2.2
  • Interest =5.55% (0.055)

Potential savings is the interest that it could...

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